Chapter 464

2004 -- H 7599

Enacted 07/07/04

A N A C T

RELATING TO INSURANCE -- INDIVIDUAL DEFERRED ANNUITIES

Introduced By: Representatives Flaherty, and San Bento

Date Introduced: February 10, 2004

It is enacted by the General Assembly as follows:

     SECTION 1. Sections 27-4.4-3 and 27-4.4-4 of the General Laws in Chapter 27-4.4

entitled "The Standard Nonforfeiture Law for Individual Deferred Annuities" are hereby amended

to read as follows:

27-4.4-3. Nonforfeiture requirements. -- (a) In the case of contracts issued on or after

January 1, 1994 the effective date of this section, no contract of annuity, except as stated in

section 27-4.4-2, shall be delivered or issued for delivery in this state unless it contains in

substance the following provisions, or corresponding provisions which in the opinion of the

commissioner of insurance are at least as favorable to the contract holder, upon cessation of

payment of considerations under the contract:

      (1) That upon cessation of payment of considerations under contract, or upon written

request of the contract owner, the company will shall grant a paid-up annuity benefit on a plan

stipulated in the contract of a such value as is specified in sections 27-4.4-5 -- 27-4.4-8 and 27-

4.4-10;

      (2) If a contract provides for a lump sum settlement at maturity, or at any other time, that

upon surrender of the contract at or prior to the commencement of any annuity payments, the

company will shall pay in lieu of any paid up annuity benefit a cash surrender benefit of an such

amount as is specified in sections 27-4.4-5, 27-4.4-6, 27-4.4-8 and 27-4.4-10. The company shall

may reserve the right to defer the payment of the cash surrender benefit for a period of not to

exceed six (6) months after demand for it therefore with surrender of the contract after making a

written request and receiving written approval of the commissioner. The request shall address the

necessity and equitability to all policyholders of the deferral;

      (3) A statement of the mortality table, if any, and interest rates used in calculating any

minimum paid up annuity, cash surrender, or death benefits that are guaranteed under the

contract, together with sufficient information to determine the amounts of the benefits; and

      (4) A statement that any paid-up annuity, cash surrender, or death benefits that may be

available under the contract are not less than the minimum benefits required by any statute of the

state in which the contract is delivered and an explanation of the manner in which the benefits are

altered by the existence of any additional amounts credited by the company to the contract, any

indebtedness to the company on the contract, or any prior withdrawals from or partial surrenders

of the contract.

      (b) Notwithstanding the requirements of this section, any deferred annuity contract may

provide that if no considerations have been received under a contract for a period of two (2) full

years and the portion of the paid-up annuity benefit at maturity on the plan stipulated in the

contract arising from considerations paid prior to the period would be less than twenty dollars

($20.00) monthly, the company may at its option terminate the contract by payment in cash of the

then present value of the portion of the paid up annuity benefit, calculated on the basis on the

mortality table, if any, and interest rate specified in the contract for determining the paid-up

annuity benefit, and by the payment shall be relieved of any further obligation under the contract.

27-4.4-4. Minimum values. -- (a) The minimum values as specified in sections 27-4.4-5

- 27-4.4-8 and 27-4.4-10 of any paid-up annuity, cash surrender, or death benefits available under

an annuity contract shall be based upon minimum nonforfeiture amounts as defined in this

section.

      (b) In contracts providing for flexible considerations, the The minimum nonforfeiture

amount at any time at or prior to the commencement of any annuity payments shall be equal to an

accumulation up to that time at a rates of interest of three percent (3%) per annum of percentages

of as provided in subsection (d) of this section, the net considerations as defined in this section

paid prior to that time, decreased by the sum of:

      (1) Any prior withdrawals from or partial surrenders of the contract accumulated at a

rates of interest of three percent (3%) per annum as provided in subsection (d) of this section; and

      (2) The amount of any indebtedness to the company on the contract, including interest

due and accrued;, and increased by any existing additional amounts credited by the company to

the contract. ;

(3) An annual contract charge of fifty dollars ($50.00), accumulated at rates of interest as

provided in subsection (d) of this section; and

(4) Any premium tax paid by the company for the contract, accumulated at rates of

interest as provided in subsection (d) of this section.

      (c) The net considerations for a given contract year used to define the minimum

nonforfeiture amount shall be an amount not less than zero and shall be equal to eighty-seven and

one-half percent (87.5%) of the corresponding gross considerations credited to the contract during

that contract year. less an annual contract charge of thirty dollars ($30.00) and less a collection

charge of one dollar and twenty-five cents ($1.25) per consideration credited to the contract

during that contract year. The percentages of net considerations shall be sixty-five percent (65%)

of the net consideration for the first contract year and eighty-seven and one-half percent (87.5%)

of the net considerations for the second and later contract years. Notwithstanding these net

considerations provisions, the percentage shall be sixty-five percent (65%) of the portion of the

total net considerations for any renewal contract year that exceeds by not more than two (2) times

the sum of those portions of the net considerations in all prior contract years for which the

percentage was sixty-five percent (65%).

(d) In contracts providing for fixed scheduled considerations, minimum nonforfeiture

amounts shall be calculated on the assumption that considerations are paid annually in advance

and shall be defined as for contracts with flexible considerations which are paid annually with

two (2) exceptions:

(1) The portion of the net consideration for the first contract year to be accumulated shall

be the sum of sixty-five percent (65%) of the net consideration for the first contract year plus

twenty-two and one-half percent (22.5%) of the excess of the net consideration for the first

contract year over the lesser of the net considerations for the second and third contract years; and

(2) The annual contract charge shall be the lesser of (i) thirty dollars ($30.00) or (ii) ten

percent (10%) of the gross annual consideration.

(e) In contracts providing for a single consideration, minimum nonforfeiture amounts

shall be defined as for contracts with flexible considerations except that the percentage of net

consideration used to determine the minimum nonforfeiture amount shall be equal to ninety

percent (90%) and the net consideration shall be the gross consideration less a contract charge of

seventy-five dollars ($75.00).

(d) The interest rate used in determining minimum nonforfeiture amounts shall be an

annual rate of interest determined as the lesser of three percent (3%) per annum and the

following, which shall be specified in the contract if the interest rate will be reset:

(1) The five (5) year Constant Maturity Treasury Rate reported by the Federal Reserve as

of a date, or average over a period, rounded to the nearest one twentieth (1/20th) of one percent,

specified in the contract no longer than fifteen (15) months prior to the contract issue date or

redetermination date under subsection 4 of this section;

(2) Reduced by one hundred twenty-five (125) basis points;

(3) Where the resulting interest rate is not less than one percent (1%); and

(4) The interest rate shall apply for an initial period and may be redetermined for

additional periods. The redetermination date, basis and period, if any, shall be stated in the

contract. The basis is the date or average over a specified period that produces the value of the

five (5) year Constant Maturity Treasury Rate to be used at each redetermination date.

(e) During the period or term that a contract provides substantive participation in an

equity indexed benefit, it may increase the reduction described in subsection (d)(2) of this section

above by up to an additional one hundred (100) basis points to reflect the value of the equity

index benefit. The present value at the contract issue date, and at each redetermination date

thereafter, of the additional reduction shall not exceed the market value of the benefit. The

commissioner of insurance may require a demonstration that the present value of the reduction

does not exceed the market value of the benefit. Lacking such a demonstration that is acceptable

to the commissioner, the commissioner may disallow or limit the additional reduction.

(f) The commissioner of insurance may adopt rules to implement the provisions of

subsection (e) of this section and to provide for further adjustments to the calculation of minimum

nonforfeiture amounts for contracts that provide substantive participation in an equity index

benefit and for other contracts that the commissioner determines adjustments are justified.

     SECTION 2. This act shall take effect upon passage and upon the effective date and

thereafter, a company subject to the provisions of this act may elect to apply the provisions hereof

to annuity contracts on a contract form by contract form basis.

     In all other respects, this act shall apply with respect to annuity contracts issued by a

company after the second anniversary of this act.

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LC01711

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